Consumer prices in Canada took an unexpected turn and rose in May, data from Statistics Canada showed on Tuesday, reversing a trend of almost consistent cooling since the start of the year. This development has forced markets to trim hopes of a rate cut by the Bank of Canada (BoC) in July to below 50%.
The Consumer Price Index (CPI) rose 2.9% year-over-year in May, up from a 2.7% increase in April. This acceleration was largely driven by higher prices for services, which saw a 4.6% rise compared to a 4.2% increase in April. Key contributors to this rise included cellular services, travel tours, rent, and air transportation. Prices for goods grew by 1.0%, maintaining the same rate as in April.
The unexpected rise in inflation has dampened the prospects of an immediate rate cut by the BoC. Earlier this month, the BoC cut interest rates for the first time in four years, stating that future rate cuts would be data-dependent. May’s inflation data, however, complicates the central bank’s path toward further easing.
Douglas Porter, chief economist at BMO Capital Markets, commented on the situation, stating, “No bones about it, this is not what the Bank of Canada wanted to see at this point, and clearly shaves the odds of a follow-up July rate cut.” He added that the next rate cut is now more likely to occur in September.
Detailed breakdown
- Cellular Services: Prices for cellular services fell at a slower year-over-year pace in May (-19.4%) than in April (-26.6%), partially driven by price declines in May 2023. On a monthly basis, cellular service prices increased by 1.2% in May compared with April.
- Travel and Transportation: Year-over-year, prices for travel tours (+6.9%) and air transportation (+4.5%) rose more sharply in May, with monthly increases of 10.4% and 2.3%, respectively. These increases were largely for travel to the United States.
- Food Prices: Prices for food purchased from stores rose by 1.5% year-over-year in May, following a 1.4% increase in April. This marked the first acceleration in food prices since June 2023. On a month-over-month basis, grocery prices increased by 1.1%, the largest rise since January 2023. This increase was driven by higher prices for fresh vegetables (+3.5%), meat (+1.3%), fresh fruit (+2.2%), and non-alcoholic beverages (+2.4%). The meat price surge was largely due to higher prices for fresh or frozen beef amid high demand and tight supply.
- Rent: Rent prices saw significant increases, with Ontario experiencing an 8.4% rise in May, up from 6.1% in April. Nationally, the rent index rose 8.9% in May, outpacing Ontario for the ninth consecutive month. A higher interest rate environment and population increases continue to exert upward pressure on rent prices.
On a monthly basis, the CPI increased by 0.6% in May, primarily due to a significant rise in travel tour prices. Seasonally adjusted, the monthly CPI rose 0.3%.
Inflation rates varied across provinces, with prices rising faster in May compared to April in six provinces.
Information for this briefing was found via Statistics Canada, Reuters, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
